Chandra Prakash Jain Erstwhile ... vs Union Bank Of India

IN THE MATTER OF: Chandra Prakash Jain ...Appellant

Versus

Union Bank of India Asset Recovery Branch ...Respondent

Present: For Appellant : Mr. Ravi Raghunath, Advocate For Respondent : Mr. PBA Srinivasan, Ms. Prerana Sabharwal, Mr. V. Aravind, Ms. Srishti Bansal and Mr. Sumit Swami, Advocates ORDER

(Oral) (Per: Justice Rakesh Kumar Jain)

15.12.2022 This appeal is directed against the order dated

02.08.2022, passed by the Adjudicating Authority (National Company Law

Tribunal, Ahmadabad Division Bench, Court-I) by which an application

bearing No. I.A/447/(AHM)/2022 filed by the present Appellant/Resolution

Professional has been dismissed.

2. Shorn of unnecessary details, an application, filed under Section 7 of

the Insolvency and Bankruptcy Code, 2016 (in short 'Code'), by the

Respondent herein against M/s Greendiamz Biotech Limited (Corporate

Debtor) was admitted on 27.05.2020 and the Appellant was appointed as

the Interim Resolution Professional (IRP).

3. The Respondent is the Financial Creditor and the sole CoC Member,

in the 3rd CoC meeting, held on 07.08.2020, confirmed the appointment of

Appellant as Resolution Professional (RP) and fixed his remuneration at Rs. 2

75,000/- per month. As per the Appellant, the CIRP cost was presented to

the CoC. In the 11th meeting of the CoC, Resolution Plan submitted by the

Resolution Applicant i.e. "Mr. Prakash Ghewarchand Jain" was dissented

with 100% voting and resolution was passed for liquidation of the Corporate

Debtor with 100% voting. It was decided by the CoC that "the CoC in its

commercial wisdom, having considered the feasibility and viability of the

resolution plan, rejected the same and proposed for Liquidation of the

Corporate Debtor." In so far as, the issue regarding the payment of CIRP

cost before the liquidation order is concerned, the CoC abstained from

voting though the Appellant had submitted the total outstanding dues as on

that date as Rs. 5,40,290/-. The Appellant filed an application for

liquidation on 02.12.2020 bearing I.A. No. 878 of 2020 in terms of Section

33(1), 33(2) and 34(1) of the Code.

4. On 06.03.2021, CoC held its 13th meeting in which it ratifies and

agrees to pay the CIRP cost incurred by the Appellant till the date of

completion of CIRP and any other further cost till date of liquidation. In this

regard, the resolution that has been passed is referred to and is reproduced

as under:

"4. RESOLUTIONS PASSED BY COC The RP apprised the CoC that as per order dated 03.06.2021 for IA No. 878 of 2020 for Liquidation Application, necessary resolutions need to be passed by the CoC for Liquidation of the Corporate Debtor. The CoC in the instant meeting therefore voted for the below mentioned resolutions:

1. Resolved that the Committee for Creditors hereby ratifies and agrees to pay the CIRP cost

Company Appeal (AT) (Insolvency) No. 1099 of 2022 3

incurred by the Resolution Professional till date of completion of CIRP and any further cost incurred till date of Liquidation Order is passed by Hon'ble Adjudicating Authority.

Assented with 100% voting"

5. The Appellant has urged that from 30.03.2021 to 16.04.2022 various

emails were sent to the Respondent seeking payment of the CIRP cost on

which the Respondent released only an amount Rs. 61,950/- on 07.04.2021

and Rs.7,00,000/- on 16.04.2022 despite a huge outstanding.

6. The Appellant thereafter filed an application on 17.05.2022 bearing

I.A. No. 477(AHM)2022 before the Adjudicating Authority for a direction to

the Respondent to pay the CIRP cost.

"25. That, as on date of filing of the present application, CIRP cost amounting to Rs. 13,90,200/- is still pending. The summary of the same is provided below in tabular form:

Sr. CIRP Cost Month Balance O/s No. 1. RP Fees March 21 to 11,56,400 (Rs.70,000/- p.m. April 2022 +18% GST)

2. C.P. Jain & Co. Apr-22 11,800 Team expenses

3. Security Services- Jan-2022 to 1,92,000 Blockade April-2022 4. IA Premjayanti 30,000 Enterprises - Legal Fees Total CIRP Cost 13,90,200 Outstanding

7. According to the Appellant, the outstanding amount of CIRP cost is Rs.

13,90,200/- as on that date. Interestingly, on 13.06.2022 the Adjudicating Company Appeal (AT) (Insolvency) No. 1099 of 2022 4

Authority, Ahmadabad passed an order directing the Respondent to make

the payment forthwith of the CIRP cost. The said order is reproduced as

under:

"We heard Ld. Counsel for the RP At Annexure-G, the RP produced on record minutes of 13th CoC meeting held on 06.03.2021 whereby CoC passed a resolution ratifying and agreeing to pay the CIRP cost incurred by the RP till the date of completion of CIRP. The CoC is bound by this. We direct Union Bank of India to pay forthwith. The fees of the RP which is not quantified in the prayer though it is in the general pleadings. We direct the RP to serve notice to CoC.

Matter stands adjourned to 02.08.2022."

08. It is pertinent to mention that in the order dated 13.06.2022 the

matter was adjourned to 02.08.2022 but the court passed the order of

liquidation on 28.06.2022.

09. On 02.08.2022, the application of the Appellant was put up for

hearing alongwith another application bearing no. 828 of 2022 in which the

impugned order was passed which is also reproduced as under:

"IA 828 of 2020 The Ld. Counsel appearing for the RP submits that the Liquidation order is passed. Hence, he wants to amend the cause title. The pleadings are complete.

IA/477(AHM)2022 is filed by the RP seeking payment of the CIRP cost. However, the order of Liquidation is passed. So it will be considered when the assets of the Corporate Debtor are liquidated. This application now becomes infructuous. Hence, stands disposed.

List IA 828 of 2020 on 17.10.2022."

10. Aggrieved against the aforesaid order, the present appeal has been

preferred in which Counsel for the Appellant has submitted that the CIRP

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cost had since been crystallised by order dated 03.06.2022 and has been

ordered to be paid, the application filed by the Appellant could not have

been dismissed as infructuous by the impugned order. He has also drawn

our attention to Section 5(13)(b)&(c) as well as Regulation 33 & 34 of the

Insolvency and Bankruptcy Board of India (Insolvency Regulation Process

for Corporate Persons), Regulations, 2016 (for short 'Regulations') to contend

that the CIRP cost is required to be paid mandatorily. Further, he has relied

upon a decision of this Tribunal in the case of Committee of Creditors, M/s

Smartec Build Systems Pvt. Ltd. Vs. B. Santosh Babu & Ors. decided on

10.01.2020 to contend that the IRP has to be paid and the question of

payment of fee at the time of liquidation would arise only if the IRP/RPs is

continued as Liquidator. It is submitted that the Appellant has not been

appointed as Liquidator. It is further submitted that the decision of this

Tribunal in the case of M/s Smartec Build Systems Pvt. Ltd. (Supra) has

been approved by the Hon'ble Supreme Court in Civil Appeal No. 2190 of

2020 which was dismissed on the ground that no substantial question of

law has been involved.

11. The Respondent has filed Reply to the Appeal and also written

submissions. Counsel for the Respondent has vehemently argued that so far

as the CIRP cost is concerned it can be paid but for the fee.

12. We have heard counsel for the parties and perused the record with their

able assistance.

Company Appeal (AT) (Insolvency) No. 1099 of 2022 6

13. The facts are not in dispute but before deciding the issue involved, we

would like to refer to the provision of Section 5(13)(b)&(c) of the Code as well

as Regulation 33 and 34 of the Regulations which are reproduced as under:

"5(13) "insolvency resolution process costs" means--

(b) the fees payable to any person acting as a resolution professional;

(c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;

33. Costs of the interim resolution professional. (1) The applicant shall fix the expenses to be incurred on or by the interim resolution professional.

(2) The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub-regulation (1). (3) The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies. (4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.

[ Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.]

34. Resolution professional costs.

The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.

[Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional."

14. Section 5(13) says that "insolvency resolution process costs" means--

(b) the fees payable to any person acting as a resolution professional; (c) any

Company Appeal (AT) (Insolvency) No. 1099 of 2022 7

costs incurred by the resolution professional in running the business of the

corporate debtor as a going concern; The arguments raised by Counsel for

the Respondent that the cost may be paid but not fee is meaningless

because insolvency resolution process cost includes both fee and cost.

15. Be that as it may, Regulation 33 of the Regulations provides for Costs

of the interim resolution professional in which Regulation 33(3) is to be

referred to which says that "The applicant shall bear the expenses which

shall be reimbursed by the committee to the extent it ratifies." According to

the Appellant the expenses have already been ratified in the 13th Meeting of

CoC held on 06.03.2022.

16. Counsel for the Appellant has also relied upon a decision of this

Tribunal in the case of M/s Smartec Build Systems Pvt. Ltd. Vs. B. Santhosh

Babu &Ors. CA (AT) (Ins) No. 48 of 2020 in which the issue was that one B.

Santosh Babu was the IRP who had not been paid his fee and cost, moved

an application before the Adjudicating Authority for that payment. The

company in the said case was in liquidation. The Adjudicating Authority

directed the CoC to pay the fee and cost incurred by the IRP and the said

decision was challenged in appeal before this Tribunal. This Tribunal passed

the following orders:

"6. Admittedly, Mr. B. Santosh Babu performed the duty of the 'Interim Resolution Professional' and constituted the 'Committee of Creditors' and thereafter, continued to function even beyond 30 days with designation of the 'Interim Resolution Professional' and as he moved an application for liquidation (though designated "continue as Interim Resolution Professional"), we agree with the observations made by the Adjudicating Authority that the 'Committee of Creditors' is to pay the fees and cost incurred by Mr. B. Santosh Babu, 'Interim Resolution Professional', who also

Company Appeal (AT) (Insolvency) No. 1099 of 2022 8

acted during the resolution process beyond 30 days till the date of liquidation having not allowed to continue as Liquidator.

7. If Mr. B. Santosh Babu- 'Interim Resolution Professional' who continued till the order of impugned order of liquidation was passed, would have been allowed to continue as Liquidator and only in such case, the payment could have been made to him as Liquidator in terms of Section 34(8) of the 'I&B Code."

17. It is pertinent to mention that the said decision has been upheld by

the Hon'ble Supreme Court in Civil Appeal No. 2190 of 2020 filed by the CoC

M/s Smartec Build Systems Pvt. Ltd. (Supra) on the ground that it has failed

to show any substantial question of law involved in the matter.

18. Besides, aforesaid legal issues raised by Counsel for the Appellant, one

glaring defect in the impugned order is that the Tribunal has itself passed

the order of payment of CIRP cost to the Appellant on 13.06.2022, which has

already been reproduced in the early part of this order. It is really strange

that after passing of the said order, the Tribunal could have dismissed the

application of the Appellant on the ground that since the liquidation

proceedings have been initiated, therefore, the said application has become

infructuous. The approach of the Tribunal is totally fallacious because once

the application has been allowed vide order dated 13.06.2022 and direction

was issued to the UBI to pay the cost of CIRP to the Appellant forthwith,

there was nothing left before the Tribunal to pass the impugned order to say

that since the liquidation order has been passed, therefore, the application

filed by the Appellant shall be treated as having become redundant.

Moreover, it is also matter of fact that after the liquidation was initiated, the

Appellant was not appointed as liquidator. All the aforesaid facts and

Company Appeal (AT) (Insolvency) No. 1099 of 2022 9

circumstances takes us to an inescapable conclusion that the impugned

order is patently illegal and deserves to be set aside. Consequently, the

appeal is hereby allowed and the impugned order is set aside. It is directed

that the Respondent shall pay the CIRP cost to the Appellant within 15 days

from the date of receipt of the certified copy of this order.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical)

Sc/pks/rr

Company Appeal (AT) (Insolvency) No. 1099 of 2022